World View & Market Commentary. Forest first; Trees second. Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.

Thursday, March 26, 2009

It was a mellow day for me as I spent less time obsessing over charts and more time getting some much needed projects rolling.

Today the DOW gained 174 points (2.3%) to place it just beneath 8,000, the SPX gained 2.3%, the NDX gained 3.6%, and the RUT raced 4.4%.

Internals were bullish with advancers 4 to 1 over decliners on the NYSE, with 73% of the volume on the upside. Amazing was the number of new lows today which was exactly zero with 10 new highs. The Put/Call finished the day in neutral ground at .92.

The bullish momentum is undeniable, and while I see some very bullish price action in certain areas (like the SOX just broke out), I also know that the fundamentals have not changed, the debt remains and incomes are not capable of supporting it. Just today we learned via John Williams that the total national income fell 7.5% in the 4th quarter. So, total income is falling while debts are zooming and wealth is plunging as a result. It is my belief that too many people are being fooled by Bernanke’s printing into believing in the reflation trade – while a trillion plus is a ton of money, it is not comparable to the trillions that have disappeared. So not yet, maybe later – I also remind everyone that we have had three straight months of negative PPI.

And the stuff that’s going on in an attempt to reinflate is just insane. Hedge fund ETF’s and mutual funds? ARE YOU KIDDING ME? This is nothing but an end run around sophisticated investor rules, one that unwitting Americans will pay dearly for. You would think that we would be heading towards less risk and leverage, but that would imply that you really mean what you say and you really don’t want to go through this again. That’s obviously not the case – they do want to go through it again, they MUST get the credit flowing again.

Now, in regards to the charts, I’m seeing signs that this is possibly done for now or close to done. I think if you are long, you are getting close to overstaying your welcome as we are extremely overbought, divergences are everywhere, and I see some candles that should give you pause. That doesn’t mean that we’re going down the crapper, it means that we should be close to getting a meaningful retrace. And following the retrace I’m sure we’ll probably make another run at it.

Let’s take a look at the medium term picture. Here’s a busy 6 month chart of the SPX. The Blue downslopping line from September is now crossing right at the 848 pivot. I have a double black line drawn there. There is a TON of volumetric overhead resistance just above where we are now, and the 848 pivot is only 16 points away. While today’s candle is not top looking, the SPY and DIA candles are more hammer like:

When I look at the 30 minute SPX, I see what about 19 waves? Lol, this has been quite the run, but it’s already run too long for how wide this channel is. The stochastic is very overbought on all timeframes up to weekly:

The NDX 30 minute shows that we threw under the rising wedge and the green channel lines show Doc’s bent channel which we nailed the top of at the close. YEA! The NDX is positive for the year – I’m sure those who’ve been holding have slept well the past 4 months – not:

While the SOX broke out on the P&F, the NDX is right now in an area of resistance as you can see by looking at this 6 month chart. The large red triangle bottom stopped the advance today right in the same area as the last two tops. It is overbought, the RSI is diverging bearishly on the short time frames, and while there’s not a hammer on the index, there is on the Q’s:

And here are the Q’s on a one month daily. The SPY has a similar hammer just under the upper Bollinger on slightly lower volume:

This is a six month view of the Emerging Markets ETF, EEM. Note that it, too, ran up into its old area of resistance and made a top looking candlestick right beneath that level. It’s very overbought and the volume is falling. If it does manage to get above that Jan 6th high, that would be bullish indeed:

The DOW daily candle looks very bullish like most of the indices that ignore the opening gap. You can see how the Bollinger is turned up and out of the way. But the stochastic has been overbought for a looooong time, volume has been falling and we are just under the big round 8,000 number and there’s a ton of volume overhead as well:

The Transports were on fire today, rising more than 8%. That’s just hilarious, sorry to the folks buying here, you are just so wrong from a fundamental perspective. Today’s candle did break the 50dma, but it also closed above the upper Bollinger, is just terribly overbought, and as you can see is now back up into overhead. The advance back up was easy while there was no resistance, now we get to see what this run is really made of:

Here’s the XLF. Another outside black hammer at the top of the run. It’s been a long time since we had the last one that failed to reverse the direction, but if you are a bull, you are fighting the odds if you think that’s going to happen twice. Volume is beginning to fall again and there is a fresh sell signal on the daily stochastic. There are also a couple of open gaps beneath us, the first one is just beneath the 50dma down to about the 8.25 area, and the other one is way down near the lows. Most financials have those same gaps:

IYR also has that open gap down near the low. Here’s a daily showing an outside hammer on lower volume right in the middle of the megaphone it’s been forming over the past couple weeks. On a relative strength basis, IYR has been a laggard. While the CMBX index continues to come in a little, spreads are still in an area associated with extreme levels of stress and high risk:

So, there is a retrace coming. We are running into resistance finally and it could be that this rally is nothing more than a retest of the big pennant – remember that? The target is WAY down there and is still in play until and unless we get back over the top of that pennant. If we were to do that, THEN I will be longer term bullish as that would also make a new high. While this has been quite the rally, it has been a rally of no substance, of nothing but manipulation and of spending taxpayer money that does not exist. Oh and talk, plenty of talk. Rallying against no or little resistance is one thing… and one thing I know is that nothing moves in a straight line, so I’m just sitting back, watching and waiting playing my mellow yellow…